In general, the Fair Labor Standards Act (“FLSA” or the “Act”) requires employers to pay employees one and one-half times their regular hourly-rate when they work overtime (more than 40 hours in a week). Some employees, however, are exempt from this general rule (i.e., overtime ineligible) and do not need to be paid extra for overtime hours worked.

This memorandum analyzes the Department of Labor’s (“DOL” or “Department”) final rule, issued on May 23, 2016, that is likely to reduce dramatically the number of employees who will be exempt from overtime pay requirements. The rule doubled the minimum salary threshold required to qualify for the Act’s “white collar” exemptions to $47,476 per year ($913 per week), substantially greater than the yearly salary of $23,660 per year ($455 per week) contained in current regulations. The new salary threshold will go into effect on December 1, 2016 and would then be updated automatically every three years beginning on January 1, 2020. DOL expects the final rule to reduce the number of employees exempt from overtime pay requirements by nearly 4.2 million people within the first year of its implementation.

These revised overtime regulations will have a significant impact on businesses of all shapes and sizes, including the insurance industry. For example, even though the Department will now allow a portion of earned commissions to be applied to the overtime eligibility salary threshold, an individual’s base salary before commission must still be at least 90 percent of the threshold. Employees who satisfy the “outside sales” personnel requirements may be excluded from this entire regime (so no overtime need be paid). To the extent a firm has treated sales personnel as “independent contractors,” the Department’s separate independent contractor Guidance issued in July 2015 may effectively bar many commissioned sales personnel – including most insurance producers – from being treated as independent contractors going forward. Producers thus generally will have to be paid a minimum base salary of almost $43,000 unless the “outside sales personnel” requirements are satisfied to avoid overtime pay requirements.

Employers should reevaluate their existing employment relationships with special attention to existing and potential overtime obligations based on the final rule. Once the rule goes into effect, it is highly likely that the Department – and zealous plaintiffs’ attorneys – will be vigilantly monitoring and litigating potential overtime misclassifications and business noncompliance.